By: John von Seggern

John von Seggern — Wed, 18 Mar 2009 20:29:32 +0000

Contrary to the central, flawed conceit of your article, the Federal Home Loan Banks play an important, positive role to the nation’s financial system. Little known? Maybe. Shadowy? Hardly. Not everyone is familiar with them. But policymakers and the banking industry know them for sure. They know Home Loan Banks’ conservative credit standards. They know these cooperatives monitor the asset quality and creditworthiness of their members. They know Home Loan Banks and their members are protecting depositors and taxpayers from the costs of increased bank failures.

Home Loan Banks work with a troubled institution’s regulator. Often the regulator determines if additional lending is required — to avoid a liquidity crisis that might prematurely cause an institution to fail. Banks cannot live on deposits alone.

The Federal Home Loan Banks are key tools for regulated lenders’ balance sheet management, not the bogeyman you have sketched.

John von Seggern

Comments on: “Shadow Fed” Casts a Shadow Over the Solvency of the U.S. Banking System

By: John von Seggern